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Morgan Stanley Analyst Updates Tesla Bull and Bear Cases in Absurdly Indecisive Letter to Investors

by Christopher Larson December 06, 2019

Morgan Stanley Analyst Updates Tesla Bull and Bear Cases in Absurdly Indecisive Letter to Investors

Yesterday morning, Adam Jonas, an analyst at Morgan Stanley updated his bull and bear cases for Tesla. Jonas updated his bear case to $10 per share, and his bull case to $500 per share. 

 

As of 2:00pm EST, Tesla ($TSLA) stock traded at $336.23 per share, up 1.77% from yesterday's close; as compared to the S&P 500, which weighed in at $3147.10, up 0.95% from yesterday's close. 

 

Last night, in an uncharacteristically agreeable post, notorious and vocal Tesla short Mark Spiegel of Stanphyl Capital united bulls and bears alike over Twitter, when he poked fun at Jonas for his seemingly lazy price estimates. Some of Spiegel's tweet has been censored for vulgarity. 

 

 

Jonas' cases come across as somewhat lazy from an analytical standpoint, although it is understandable that one would have trouble in trying to accurately value Tesla's stock. Tesla CEO Elon Musk summarized it best himself when he said "We really [design Teslas] to be very sophisticated computer[s] on wheels. Tesla is a software company as much as it is a hardware company. A huge part of what Tesla is, is a Silicon Valley software company." 

 

Anyone who follows Tesla or has driven one even once knows that the company's cars are different from those of traditional ICE automakers in innumerable ways. Tesla's entire process is completely different from that of other automakers in every step of the way -- from design to fabrication, and on to distribution. Should an analyst therefore value Tesla as a Silicon Valley tech company? Or as a Detroit automaker? In reality, Tesla must be valued with a reasoning that most financial analysts find exceedingly difficult: Tesla must be valued objectively. 

 

Image: Morgan Stanley Research's bear case, target price, and bull case.

 

Tesla deals with many subjects that most people in the business world tend to have strong preexisting opinions on. Whether it's environmental preservation, big oil, Detroit, Silicon Valley, or even Elon Musk, almost every analyst has hard-to-shake notions on these topics that heavily influence their appraisal and target prices. From this perspective, Jonas' estimates and cases are almost admirable, in that Jonas is valuing Tesla from a seemingly non-bias perspective.

 

 

For his bear case, Jonas valued Tesla at $10 per share, citing fears of Tesla losing its appeal as a non-traditional OEM, suggesting that as Tesla gains notoriety, the company may be somewhat coerced by into more orthodox and Detroitian methods. 

 

For his bull case (and the reason he updated his prices), Jonas referenced the Cybertruck release. Rabidly fanatic Tesla followers on Twitter seem to have decoded Cybertruck's numbering system for reservations. Currently, it is estimated that over 350,000 reservations (and therefore, $100 deposits) have been placed for the upcoming Cybertruck. Jonas wrote that “In an optimistic scenario,” he sees Tesla selling 100,000 Cybertrucks by the end of 2024. While one may argue that this estimate seems somewhat airy, most would likely agree that it is extremely unlikely that Tesla would sell any less than 100,000 in that time frame, especially given the recent timeline shifts on Cybertruck and some of Tesla's other key projects, such as the Model Y and the Tesla Semi. 

 

Admittedly, Tesla is somewhat difficult to value, but this difficulty in appraising the company says nothing about the implicit value thereof. Even though estimating a price target of $250 per share, with a bear case of $10 per share and a bull case of $500 per share appears as lazy analytics from Jonas and Morgan Stanley, Jonas is somewhat justified in his indecisiveness. Despite this, many promising projects are in the works and ahead of schedule at Tesla, and long-term outlook is very positive.




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